VCs invest in bio-based chemicals

Venture capitalists (VCs) have pumped US$5.8 billion into bio-based materials and chemicals (BBMC) startups since 2010, reflecting the drive for sustainability, performance, and alternatives to petroleum feedstocks. While from 2010 - 2015, the investment focus was on drop-in replacements for established chemicals, in 2016 VCs' focus has shifted to disruptive synthetic biology (synbio) and conversion technologies, according to Lux Research.

Synbio startups attracted over US$300 million, accounting for 53% of all VC investment in 2016 (through October 11), and three of the top five deals. Fermentation and catalysis had funding shares of 20% and 16%, respectively.

"VCs in 2016 have taken a step back in the value chain to focus on upstream technology platforms such as DNA synthesis-as-a-service and automated genomic engineering and laboratory equipment," said Victor Oh, Lux Research Analyst and lead author of the report titled, "Show Me the Money: Where Is Venture Capital Placing Bets in Bio-based?" "Synbio companies are embracing information technology like BioCAD and BioLIMS to create disruption and to integrate new digital genetic tools like CRISPR gene editing," he added.

Lux Research analysts built a database of companies and investments in the BBMC space. Among their findings:

Synbio poised to grow bigger. The top five VC investments – Zymergen, Gingko Bioworks, Twist Bioscience, Elevance Renewable Science and Bolt Threads – reveal an emphasis on automating synbio. These five have raised US$430 million in total, and growth of these platforms should lead to even bigger numbers for the segment in 2017.

Spider silk catches fancy. Spider silk's superior properties over those of conventional fibre materials like nylon and silkworm silk have prompted big deals, like US$82 million for Bolt Threads over the last two years. Japan's Spiber and Germany's AMSilk have also pulled in big deals, and up-and-comers like Araknitek and Spiber Technologies may be up next.

Low oil hits drop-ins, substitutes. Amid low oil prices, VCs have shifted focus this year to commercialising bio-based products that offer improved performance, not just 'greener' replacements for petro-based compounds. About 80% of VC investment in 2016 was on improved products, as opposed to only 46% from 2010 - 2015.